The US dollar weakened against major currencies today as disappointing economic figures reinforced expectations of Federal Reserve interest rate cuts later this year. The dollar index (DXY), which tracks the greenback against a basket of currencies, dropped 0.4% to its lowest level in over a week.
What’s driving the dollar’s decline?
The latest US jobless claims came in higher than forecast, signalling potential softening in the labour market. Additionally, a slowdown in producer price inflation (PPI) added to concerns that economic growth may be cooling faster than expected. Traders now see a stronger chance of the Fed cutting rates in September, with markets pricing in nearly a 70% probability, up from 60% earlier this week.
The euro gained 0.5% against the dollar, trading above $1.0850, while the British pound rose 0.3% to $1.2670. The yen also strengthened, with the USD/JPY pair slipping below 158.00 as investors grew cautious ahead of potential intervention from Japanese authorities.
Market reactions and outlook
- Stocks edge higher: A weaker dollar provided some relief for equities, with the S&P 500 and Nasdaq opening slightly firmer.
- Treasury yields dip: The 10-year US yield fell to 4.25%, reflecting increased demand for bonds amid rate cut speculation.
- Commodities get a boost: Gold prices climbed above $2,380 per ounce, while oil held steady as a softer dollar supported broader commodity markets.
What’s next for the dollar?
The greenback’s near-term direction will hinge on upcoming inflation and jobs data. If signs of economic weakness persist, the dollar could extend its losses. However, any hawkish signals from Fed officials could quickly reverse today’s moves. Traders will closely watch next week’s retail sales figures and Fed Chair Powell’s comments for fresh clues on monetary policy.
For now, the dollar remains under pressure as markets bet on a more dovish Fed—setting the stage for potential volatility in currency markets in the weeks ahead.
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